What are the Costs of a Bad Hire?

You spend hours flipping through resumes, interviewing countless candidates and training them once the final choice is made… It can be a long and expensive process, especially if the candidate is quickly let go or leaves shortly after being hired. But what are the true costs of bad recruitments, and how are they calculated?

There’s no need to be an accountant to understand that a bad hire costs a lot of money. Paid salary and the amounts of time and money invested at each stage of the recruitment process are what come to mind first.

In the absence of precise data on the subject in Canada, we must turn to the American side, where the Ministry of Labour has established that a bad hire costs the employer approximately 30% of the employee's salary during the first year.

And according to the National Business Research Institute (NBRI), this percentage increases as the salary goes up.

Eric Tondo, co-founder of the predictive recruitment platform Biglittlejob.com, examined the impact of a bad hire and came up with a tool that would help companies to maximize their chances of success in recruitment. “For a management or a strategic position, recruiting the wrong person would cost around $300,000,” he says.


The domino effect of a wrong decision

Others go even further into the factors influencing the total cost of a bad hire. Resoomay’s infographic, published by Recruiter.com, illustrates the “real” costs, which take into account the price of recruiting, total compensation, the degradation of the teams’ performances, severance pays, errors, failures and missed opportunities.

According to an infographic found on the blog TheUndercoverRecruiter, based on a US $62,000 salary of a manager of second tier who was fired after two and a half years of service, it would cost an employer US $840,000 for having "made a mistake!" 
Numbers that may indeed seem a tad sensational, but the infographic is still able to correctly describe all the expenses that must be considered when it comes to botchedrecruitments.

Some factors, however, are more difficult to assess. While it’s easier to determine the number of customers lost due to a bad employee, it is more difficult to predict the number of customers “potentially lost” because of bad word-of-mouth.

Moreover, the bad apple phenomenon can have disastrous consequences on an entire team. According to a study performed by Robert Half, a major global staffing service company, the majority of the 270 CFOs surveyed working in Canadian organizations indicated that a weakening of morale and lost productivity could mainly be attributed to a bad hiring decision, with results coming in at 41% and 34% respectively.

A less efficient employee adds pressure on others who have to sometimes work harder to repair the errors of the former. If the situation deteriorates, the other members of the team might even be tempted to jump ship themselves.

These astronomical figures even support the need to refine recruitment techniques in order to reduce the risk of making bad choices.

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